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I have been guilty, on many occasions, of eviscerating the strategy taken by the leaders of the euro zone to combat its dangerous debt crisis. They have routinely acted too late with too little, causing contagion to spread through the zone, because they have been unwilling to put the interests of the euro over their own political careers. I have been far from alone in forwarding such a critique. Everyone from George Soros to Timothy Geithner has expressed their concern over Europe’s lack of action. The primary target has been German Chancellor Angela Merkel, who is really driving the entire effort. Her insistence on austerity would send Europe into a tailspin, critics contended, while her continued resistance to steps many believe would halt the crisis – such as a bigger bailout fund, or jointly issued Eurobonds – was putting the entire monetary union at risk.

But sentiment appears to be changing. There seems to be growing optimism in Europe that the worst of the debt crisis is behind them. French President Nicolas Sarkozy was practically giddy at last week’s summit of European Union leaders. “We’re turning the page on the financial crisis,” he said at a press conference. “The strategy we’ve implemented is bearing fruit.” Now I find myself under attack. One former TIME editor is bombarding me with emails saying that my continued gloom about Europe’s future is more and more misplaced.

So is Merkel’s debt crisis strategy actually working? Have its many critics been wrong all along? Well, in my opinion, the answer depends on what we mean by “working.”

Clearly, Merkel’s policies have brought Europe back from the brink of true disaster. Back in November, the monetary union appeared to be on the verge of unraveling, with the banking sector facing a destabilizing credit crunch, the Greek crisis intensifying, and contagion spreading to Italy. Today, the situation has greatly improved. Italy’s 10-year bond yield, which late last year soared over 7% – a rate which the country would eventually find too expensive to bear – has dipped under 5%, thanks to the bold reform efforts of new Prime Minister Mario Monti.Greece, after much drama, looks likely to get both a restructuring of its debt and a second, $170 billion bailout. An emergency cash-injection program by the European Central Bank has eased conditions in the banking sector. And the leaders of the euro zone have agreed to other significant reforms to the monetary union, including tougher rules on deficits and debt (a step towards much-needed fiscal union) and the faster introduction of a permanent bailout fund. There is also talk of other important reforms, such as steps to deepen Europe’s common market, which could help spur growth. Investors are obviously pleased. Even as the Greek bailout hung in the balance, the euro was strengthening — a signal that market players have begun disassociating the debt crises in the zone’s peripheral countries from the survival of the 17-nation common currency itself.

Though I will give credit where credit is due – a lot has been achieved in just the past few weeks – I’m still not prepared to hang up a “Mission Accomplished” banner just yet either. What continues to concern me is that most of the serious problems facing the euro zone remain unresolved. I fear investors are looking at the bandages and not noticing that the wound underneath isn’t healing.

First of all, we have to question if the bailout programs are actually achieving what they are supposed to achieve – restoring confidence in the debt-laden economies of the euro zone. There are still serious doubts about the viability of the second Greek bailout for three key reasons: (1) concerns remain that the Greek government will not be able to hold up to its reform commitments; (2) there is a strong likelihood that the government brought in by the upcoming Greek elections will try to renegotiate parts of the deal; and most importantly (3) the bailout may not improve the debt sustainability of Greece’s government. A recent IMF assessment figured that the bailout was based on unrealistic assumptions and that Greece’s government debt (relative to the size of the economy) might be at the same level in 2020 as it is today. That raises the possibility that Greece won’t be able to return to capital markets for funding any time soon, which could mean the country might require yet a third bailout. The problems with the European bailouts don’t end there.Portugal, which has implemented reforms more aggressively than Greece, is still suffering from bond yields at extremely lofty levels, raising concerns that it, too, might require another bailout. And the IMF warned last week that even Ireland, the poster child for euro zone reform, might not be able to fund itself in financial markets after its bailout starts running out in 2013. So the euro zone still runs the risk of having to keep one or more of its members on continued financial life support. And we have to ask if the richer members of the euro zone will be willing to keep shelling out more and more money. Just look at the wrangling over the second Greek bailout, in which some members, especially Germany, were actually considering allowing Greece to default rather than throwing more good money after bad.

Secondly, the austerity measures demanded as part of the German-led reform agenda continue to send several countries in Europe into a “deflationary debt spiral.” Economies are contracting across Europe as the pain of higher taxes and reduced government spending bite into growth. As a result, deficit targets become harder to meet, and debt more difficult to stabilize. That reality hit home last week when Spain announced that it would miss its deficit target for 2012 as the economy is now expected to contract more sharply than initially forecast. What this also shows is that the tighter rules of the new fiscal compact, agreed to at last week’s EU summit, can do very little to alleviate the debt situation of these countries today. Investors seem to have forgotten how severely austerity is damaging growth and employment prospects in much of Europe, and how that will keep the debt crisis very much alive.

Third, we shouldn’t kid ourselves that the European banks are out of the woods either. The ECB averted disaster in the banking sector by slathering it with liquidity. According to the WallStreet Journal, the ECB has granted more than $1.3 trillion of low-interest loans to hundreds of banks since December. But that cash is no substitute for true balance sheet repair. Research firm Capital Economics argued in a recent report that the ECB’s lending program “might have prevented an outright collapse in some banking sectors” but then added that those who believe the loans will alleviate the wider crisis “are likely to be disappointed.”

Even if banks have more money to invest, we are not convinced that they will stash it in risky government bonds. Recent data have also shown continued acute weakness in lending to both firms and households. Admittedly, it might take time for banks to use their new funds to increase lending. But January’s ECB bank lending survey…revealed that banks intended to tighten their lending criteria further.

Nor is the liquidity boost a substitute for real bank reform. The promised euro zone-wide recapitalization program has yet to materialize, and even that might prove insufficient to fix the banks. Joao Soares, a partner at consulting firm Bain, points out that the deteriorating economic conditions in the weaker European economies will only further undercut the health of the banks going forward. As economies contract, more companies suffer, and bad loans at banks increase. That in turn could put more pressure on governments to aid the banks – increasing the strain on debt-heavy sovereigns trying to cut deficits. Europe could end up in another nasty downward spiral, with deteriorating banks placing a heftier burden on government budgets, leading to heightened fears of both a banking crisis and a sovereign debt crisis. Soares adds that Europe has been much too slow in addressing the problem of its banks, which he expects will make the banking problem a long-term drag on Europe’s recovery. “We’re looking at a very protracted (banking) crisis like Japan’s,” Soares recently told me.

So let us return to our original question: Is the German debt crisis strategy working? Yes, in terms of bringing Europe back from a near-death experience. No, in terms of actually solving the debt crisis. The question now is: Will Germany’s efforts continue to bolster confidence even as the underlying problems persist? I wouldn’t count on that.